Says Israel will reconsider PA unity government stance if Gilad Shalit is freed.

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Prime Minister Ehud Olmert and Defense Minister Amir Peretz on Monday both denied a story in Ma'ariv a day earlier saying the problems in their relationship are harming the country.
The Ma'ariv story was the main topic of conversation on Sunday's radio shows. Olmert and Peretz took pains to shift the focus of the public's attention on Monday. They made sure the issue would be removed from the agenda of the Knesset plenum, and Olmert started a new fight with opposition leader Binyamin Netanyahu.

Olmert, Netanyahu clash over Hamas and Golan Heights
Olmert described his contacts with the defense minister as an "intact working relationship." Speaking to members of the Knesset Foreign Affairs and Defense Committee, Olmert said he held daily phone conversations with Peretz, who called him on Sunday following the successful test of the Arrow missile system.
"There doesn't have to be an intimate relationship between the prime minister and the defense minister," MKs leaving the meeting quoted Olmert as saying. "It's not written in any basic law or in the weekly Torah portion."
Peretz told the Labor faction that there was no problem with his relationship with the prime minister. His associates said the two men got more done than if their relationship was warmer, because they didn't waste time on small talk.
"Their relations are by the book," a Peretz associate said. "I think the relationship bears more fruit than if they were friends, because when they talk, they talk only about work. It's wrong to say they have no relationship."
The latest friction between the heads of the largest parties in the coalition was over the renovation work being carried out near the Temple Mount. Olmert was said to have been angered by calls from Peretz to halt the work and by claims by the defense minister that his ministry had not been informed about the project beforehand.
Defense officials criticized both Olmert and Peretz for failing to get along, saying their personal relationship was holding up decisions that needed to be made on the future of various projects in the Defense Ministry.
One such decision concerns the future of the Israel Military Industries, which is heavily in debt. Olmert favors privatization while Peretz - who apparently reached a deal with IMI workers in exchange for their support in the May 28 Labor Party primary - wants to merge the company with another defense company such as Rafael or Israel Aerospace Industries.
"These decisions are vital for the state," said one senior defense official. "But because these two don't get along, nothing is happening."
Sources close to Olmert have made it clear over the past few weeks that he wants Peretz to leave his post. However the sources say reports of a near complete breakdown of communication between the two men are exaggerated.
According to the sources, the two talk on the phone a few times a day, and meet in Tel Aviv every Thursday. The sources say that while the two may not like each other, they communicate on a professional level.
The fact that the two do speak on a daily basis is what irritated Olmert about the letter Peretz sent Olmert objecting to the excavation work near the Mughrabi Gate in Jerusalem's Old City. This was completely unnecessary, an official said, because Peretz could have registered his complaints with Olmert in a telephone conversation they held that day.
While members of the coalition kept mum on the alleged rift, MKs from the opposition were quick to say the two men were now unable to work together.
"The relationship between the prime minister and the defense minister has become completely unstable," said MK Silvan Shalom (Likud). "A working relationship between the two is necessary for the state's affairs to run smoothly."
Likud MK Yuval Steinitz said the Olmert-Peretz row had damaged Israel's image abroad.
"The entire world is laughing at Israel because of the relations between the prime minister and the defense minister," he said.
"This is a farce that embarrasses not only the government, but all of us as well."
Yaakov Katz and Herb Keinon contributed to this report.

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